An Open Letter Opposing Emmanuel Macron’s Project for EuropeSigned by 154 German Economists Regarding Fiscal Harmonization and Financial Union

This open letter, addressed by 154 German economists against the Euro zone reform proposed by France, passed all but unnoticed. These well-known economists warn against a Europe led by a European Minister of Finances and the European Central Bank. In contrast with the French proposal, the signatories of this open letter argue that Europe needs structural reforms in all States, as well as accountability and tax competition. IREF gives you the full text of the letter.

We, 154 economics professors, warn against further morphing the European monetary and banking union into a joint-liability system. Emmanuel Macron‘s proposals and those of the European Commission President Jean-Claude Juncker, mentioned in the Coalition Agreement between the CSU, the CDU and the SPD with a view to shaping the new federal German government, involve big risks for the all European citizens.

1. If, as planned, the European Stability Mechanism (ESM) is used to bail out (backstop) weak banks, banks and monitoring authorities would be less likely to acknowledge their non-performing loans and adjust their balance sheets accordingly. This will negatively affect economic growth and financial stability.

2. If, as planned, the ESM translates in the European law as “European Monetary Fund”, it will fall under the influence of countries that are not members of the euro zone. Since no country could use its right to veto EMF’s urgent decisions, creditor countries could be in the minority. In particular, the German Parliament could be bypassed.

3. If, as planned, there will be a centralized bank-deposit guarantee, the same will apply to the cost of the errors that the banks and governments made in the past.

4. New funds will be created: the European investment fund for macroeconomic stabilization and the structural reform support fund. These could lead to further transfers and loans to euro zone countries which, in the past, have failed to take necessary reform measures. It would be wrong to reward misconduct. With the Target2 interbank payment system, Germany has already accepted more than €900 billion in bonds from the European Central Bank – bonds which do not pay interest and will necessarily be paid.